Market hits new lows on Libor news

Leading shares have fallen to news lows for the day, with the FTSE 100 down 169.3 points at 5034.9 in volatile trading.

Part of the reason is a sharp jump in overnight and three-month Libor rates - the rates at which banks lend to each other. Overnight dollar Libor has more than doubled to 6.43%, overnight sterling has climbed from 5.49% to 6.79% while three-month sterling has risen from 5.715% to 5.79%. This means that despite the central banks' attempts to increase liquidity by pumping money into the system, it looks like it is freezing up again.

On top of that comes a fall in Dow Jones futures ahead of results from Goldman Sachs and any news on troubled insurer AIG and struggling savings and loan business Washington Mutual.

Traders were also hearing suggestions that some of the market's fall could be traced to the unwinding of positions held by Lehman Brothers.

"We're in unchartered territory," said one seasoned dealer. "People haven't experienced anything like this in 30 years. It's like the 1974 banking crisis, but on a global scale."

Elsewhere, software group Misys was marked down 9.5p to 144.5p on its links with Lehman Brothers. Lehman is a customer of its systems but, more crucially, it helped with the funding of the company's acquisition of US group Allscripts.

Landsbanki has issued a note outlining the situation: "Misys has a $155m (£87m) term facility with Lehman to fund the Allscripts deal. It has a further $150m revolver (of which no more than $30m may be used to fund the transaction). With our forecast of a net debt position of some $140m post the transaction, Misys needs these facilities.

"The major cash outgoing is the $330m dividend to be paid to Allscripts' shareholders five days after the deal closes (around 1 October). So we imagine Misys has some two weeks to find funding in a tricky (and possibly expensive) market. It is unclear whether the EGM [on 22 September to ratify the deal] can proceed if the facilities are no longer in place, but we would assume so.

"While this must be the worst two weeks of the crunch so far to go shopping for a $305m facility, we assume one is available at some price and as such we imagine the deal should still go through. Certainly Misys must be working overtime to ensure it does. Its own healthcare business was already in sharp decline. It has stopped investing in R&D in its own business and we suspect business has continued to be poor. Quite apart from any break fees (£7.1m), the business would not be in good shape on its own. While we do not believe that will happen, the risk has just increased."

A Misys spokesman could not comment immediately but promised to look into the situation.